Archive for October, 2009

Outsourcing should never be considered if economic factors are the only thing that you are considering.

The ability to react to changes in the business with timely delivery of quality services and value plays a big role. Customer satisfaction, should be the IT group’s mantra and it should be instilled in everyone of the groups members.

To determine whether it makes sense to outsource, you must understand what makes for a successful outsourcing partnership.

1. Customer Satisfaction
If the customer isn’t satisfied with the goods or services you provide, you can be sure they’ll either be looking elsewhere or escalating their concerns. You must take a customer approach and insist that your outsource provider have the same commitment.

2. Align all sourcing actions to your business strategy:
A sourcing strategy must be defined in business terms.” You’ve got to get business executives on the same page.” Define ROI and critical success factor together and make sure that everyone is on the same page as to the reason for outsourcing.

3. Select the delivery model that best suits business and financial goals:
The only way to get sustainable business benefits and performance improvements is to leverage and adapt to the service provider’s operating environment. Making the right delivery model choice means you must understand the different types of delivery options (offshore, nearshore, utility and so on) and align your preferred options to the business goals.

4. Measuring Metrics
Too many organizations undertake outsourcing arrangements and attempt to focus their attention on two or three critical success factors. Intangible metrics such as Customer Satisfaction, employee retention, and application quality need to be included in any metrics management initiative. As well as the obvious metrics such as ROI, budget and impact on the enterprise.

5. Financial savings
Outsourcing in many cases provides a financially compelling alternative to providing the services in-house. However, if reducing cost year over year is a key measure, it’s essential that you craft the partnership so that the provider has the incentive to help you meet your goals.

Like every other company, the Outsourcers goals are to grow revenues with existing clients and increase profitability. There needs to be a measured balance as to how both companies are going to achieve their goals. If this is not accomplished then end user customer is the one who suffers.

6. Weigh the value of customized versus standardized services:
Customization can deliver specialization and differentiation whereas standardization can deliver agility and speed. Which one is right for you? You must evaluate the risk/benefit of each solution and determine the strategic importance of the expected outcome to determine the right fit for your firm.

7. Delivery and quality
Delivery and quality aren’t always used in the same sentence, but they should be. Be very specific and deliberate when documenting your expectations on delivery and quality. It’s not enough to say that all requests for service will be responded to within 15 minutes from time of call and closed within six hours. It is more important to articulate that if a problem occurs it will not occur repeatedly over the length of the contract.

8. Scalability
Your outsource partner needs to be positioned to meet your growth requirements, so don’t just look at their current capability—look at their ability to scale. Just as you need time to ramp up skills and staff, your outsource provider needs time to react to your needs.

9. Define the relationship model and incentives for mutual benefit:
A true partnership means accepting risk and sharing rewards on both sides and is appropriate only in strategic business-critical outsourcing relationships. Mapping outcome to payment and incentive structure, determining the mutual investments and benefits and defining “success” will help outline the relationship

10. Negotiate and renegotiate a win-win deal:
No deal stays the same. It is best to negotiate up front that certain modifications can be made to the agreement at the end of each year as the corporate environment changes. Two to three years into any deal, business drivers can and will change for both parties. It’s best to realign expectations and benefits on an annual basis.

Offshoring to distant locationsInsource (or keeping the work at home)Nearshoring (a compromise solution)—this model is increasingly offering a more competitive and attractive alternative to the other two offshoring models.

Nearshoring is simply “outsourcing” or offshoring to an offshore location that is much closer to home. In other words, rather than a USA based company outsourcing work to a provider or shared services operation located in India or the Philippines, nearshoring would be the same company outsourcing the work to a provider or shared services operation located somewhere in Latin America or Canada.

The Benefits of Proximity. The key benefits provided by nearshoring are all related to the proximity of the nearshore destination to the home country and these potential benefits may include:

1. Cultural Proximity inevitably brings cultural and linguistic similarities. The USA for example, has a huge Spanish speaking community and many Latin Americans have relatives in the USA. Hence, it makes sense to nearshore work, especially contact center work for the Spanish speaking community, to a location south of the border.

2. Economic Proximity and historical ties also lead to close economic ties. The rise of free trade agreements such as NAFTA (which was originally created to benefit the agricultural and manufacturing sectors) inevitably bring the same benefits to companies who decide to nearshore a portion of their work to countries covered by such agreements. Furthermore, nearshoring inevitably leads to an indirect increase in trade and business in general between the source and destination countries; thus, a win-win situation for all.

3. Political Close economic ties may also be followed by close political ties. The European Union (EU) is both an economic and a political union and hence, companies in Western European countries who nearshore to locations in Central or Eastern Europe will find familiar regulatory regimes along with friendly political environments in which to operate in. Moreover, both the EU and NAFTA offer flexible visa and other arrangements for professionals from member countries to move across borders for long periods of time. Furthermore, with intellectual property (IP) protection increasingly a critical concern, nearshoring to an EU or NAFTA member country is generally less risky as these countries have strong IP protection measures in place and these measures are generally enforced.

4. Geographic Proximity will likely mean being only a few time zones away. Hence, this will make the critical interaction necessary between all the parties involved all the more easier (and no 3 a.m. meetings).

5. Cost Furthermore, less distance means that face to face interaction is less expensive and time consuming as time is not wasted traveling from the home country to the offshore location. This inevitably leads to more face to face interaction between all critical parties necessary to make an outsourcing arrangement viable. Likewise, the inevitably additional costs (sometimes, as in the case of the Philippines, mandated by law) associated with hiring workers to work night shifts or odd hours is largely eliminated.